So, you’re looking for a digital marketing agency, but you’ve heard that sometimes they can get a bit… what’s the word? Lazy? Distracted? Dishonest about how much time they have spent on your campaign? Something along those lines, anyway.

It’s not surprising. Each month, your agency sends you an invoice for services delivered, but you haven’t actually seen anything being done. They swear black-and-blue they’ve been ‘optimising’ or ‘keeping things on track’ but are a little cagey on the specifics.

You pay your bill, and nothing changes. Better results here, worse results there, more ‘keeping things on track’ and ‘optimising.’

It can be a little hard to sign those cheques. For that reason, you might be wondering if you’d be better paying your agency by the hour instead of paying a fixed sum every month.

But, is it a good idea? Let’s talk about it.

First, let’s look at the advantages and disadvantages of the different retainer types.

Hourly Rates – The Good

Simplicity

An hourly rate is as it sounds. The agency does an hour of work, and then you pay the agency a fixed rate for that hour’s work. It’s simple and you get what you pay for. This means it is very easy to keep track of where your money is going.

Measurable

Generally, hourly rates are quite flexible. You ask the agency to do something. They quote a number of hours to complete the job. You approve those hours, and the agency gets to work. At the end of the project, you get exactly what you wanted for a price you were willing to pay.

Flexible

Hourly agreements are generally flexible, giving you the ability to increase and decrease your hours as you need. This is good if you don’t always need help from your agency. You just need them to come in once every while and do something a little more technical than your own abilities allow.

Post-Paid Options

Some agencies may request payment at the end of the month after they have completed the work. This means you have the chance to verify what they spent their time doing in that month. While withholding payment is never a good idea in many situations in life, if you see a discrepancy in your hours, you can still challenge this without having to pay first.

Shorter Cancellation Periods

Most agencies have a 30-day cancellation policy. Hourly retainers don’t generally come with this because you have the flexibility to adjust your hours, or at least fall back on a minimum agreed number of hours.

Hourly Rates – The Bad

You’re Not The Priority

Agencies don’t like hourly retainers (we’ll come to why that is later) and because of this, you’re generally bottom-of-the-pile when it comes to the priority of work. Agencies will always prioritize their clients on fixed retainers over more flexible, hourly rates. Those retainer clients have made a commitment to the agency, whereas you haven’t, so this isn’t surprising.

Difficult to Increase Hours

Flexibility works both ways. Because you’re not the priority, your agency generally won’t consider your needs when allocating internal resources outside of the bare minimum. Thus, if you require more hours you may find your agency doesn’t have any to give, meaning you’ll have to wait for a slot to free up.

Lost Focus

It can be very easy to start debating how long everything takes as opposed to the outcome a project produces. Your agency might say it spent five hours working on your project, but if you don’t feel that’s accurate, you can actually start using up more hours debating with your agency where their time went, which keeps them from doing the work you’re actually paying them to do.

You’ll Be Charged For Everything

Agencies are like lawyers in the sense that if they spend any time working on your project, they are charging you for their time. Phone them out of the blue? You’ll be charged. Send an email asking for information? You’ll be charged. Want a meeting? Charged. Don’t show up to that meeting? Guess what? Charged.

This isn’t unreasonable, either. If you insisted on being an hourly retainer, you can’t expect the agency to give you time for free because you need something out-of-scope. That’s a benefit reserved for clients on retainers.

Costs Can Spiral

In digital marketing, what seems like a simple project on the surface can actually turn into a saga full of complexities & problems. Even if your agency quoted five hours to do something, if they end up opening a veritable Pandora’s Box of problems, those five hours go very quickly.

If the agency isn’t at fault, they may ask you to pay for more hours to keep going, meaning that you can quickly find yourself paying much more.

Hourly Rates Change

Like everything else in life, the costs of running a business keep going up. Rent increases, utility bills increase, technology requirements increase, and staff require more wages as the average salary increases.

Because of this, agencies can and will put up their prices to cover their increasing costs, and if you aren’t locked into an agreement, they can increase your hourly rate whenever they please.

Surprises

Post-payment can have its downsides, too. Like many business owners, you may not have time to keep tabs on everything your agency is doing or keep track of the hours you’re approved. This can lead to nasty surprises at the end of the month when your bill comes through.

However, agencies tend to keep quite good records of exactly this sort of thing, and if they’ve done what you asked, it isn’t their fault that you can’t remember what that was.

Negotiations

Picture the scene. You ask your agency to do something. They quote five hours. You’re only willing to pay for three. They stick to five. You want three. They offer you only part of what you want for three, but you want the whole thing for three. Cue the discussions, negotiations, and endless back-and-forth while you waste each other’s time until you settle on four in a week’s time.

Ironically, you’ve just lost a few hours of your time, which will cost you more than the two hours you would have saved, and the agency is probably in the same boat. Everyone loses out.

Fixed Retainers – The Good

Mutual Commitment

Having a fixed retainer with an agency shows a commitment from you to them. In return, their commitment to you is that they will allocate time & resources toward your campaign with a greater priority than if you were on an hourly retainer. You always have a space when allocating resources for the month because the agency can rely on your payment.

No Need To Keep Track Of Hours

A fixed retainer isn’t impacted by the number of hours the agency works. In many cases, agencies won’t actually keep track of the hours they spend working on your campaign. This means you don’t need to scrutinize and justify every hour the agency spent working, saving you time when it comes to invoicing.

Focus On Outcomes

Because you’re not focusing as much on how long is spent doing the work, you and your agency can focus on outcomes instead. If you’re paying an agency to run SEO for you, then you’re not necessarily paying for the steps involved in making that happen. Rather, you’re paying for the outcome, which is to get to Page 1 of Google.

Costs Are Consistent

It’s always nice to know exactly how much revenue is coming to and going from your business, so fixed, recurring payments to your agency mean there are no nasty surprises or unexpected costs involved with your marketing.

Get More From Your Agency

Because you’re not paying by the hour, agencies are far more likely to accommodate off-schedule meetings, phone calls, and requests from you without charging extra. This means you can have your questions answered sooner than if you were on an hourly rate.

Fixed Retainers – The Bad

Pre-Paid

Almost all retainers require payment upfront. This can be a tough pill to swallow, particularly if you’re new to digital marketing or you’ve been burned by agencies in the past. With retainers, you have to cough up the dough before the agency does anything, so you can’t try their services first.

Minimal Flexibility

Because you pay in advance, if you don’t need your agency’s help in the middle of the month, you won’t get your money back. You also can’t easily increase or decrease your retainer because it will generally require a new agreement to be signed. And, if you want to cancel, there’s generally a minimum of 30 days required, and that period is chargeable.

No Measure Of Hours

Because you aren’t paying by the hour, agencies probably aren’t keeping track of hours. Thus, if you want to know how long an agency has spent working on your campaign this month, that data is likely unavailable. Regardless, you still have to pay the fixed amount, even if it turns out that the agency coasted for that month.

Not In Scope

Digital marketing agencies love saying “That’s not in scope” when a client asks them to do something that isn’t really part of their retainer. It’s a nicer way of saying “You aren’t paying enough to get that.”

However, retainers are generally used for fixed services. You pay X for an agency to do Y each month. But, when you suddenly want the agency to do Z, you might find you have to pay extra on top of the Y because you’re asking for something that you actually aren’t paying for.

On an hourly retainer, the agency could just throw on a couple of extra hours, but retainers simply aren’t that flexible.

Why Don’t Agencies Like Hourly Rates?

It’s mostly a matter of financial security. Just like you and I, agencies like to know exactly how much money is coming in each month, and fixed retainers are a great way of predicting how much you’ll make in the upcoming months.

Agencies can’t rely on hourly retainers because, as mentioned, you can cancel them at almost any point. This puts them at a disadvantage and makes purchasing decisions harder.

Remember, your hourly retainer might be quite small, but once you add up all the hourly retainers an agency has, anywhere between 10% & 30% of their revenue might be at risk every month.

This makes it far harder to plan financially, and if the agency is looking for finance options or investments, hourly retainers are a red flag.

So What’s Right For You? Hourly Or Retainer?

Fortunately, this question is largely answered for you as agencies are largely winding down their hourly options. There’s a very good chance that you’re only going to be offered a fixed retainer.

And that’s probably not a bad thing. The number one problem with hourly rates is that most clients aren’t experts in marketing. As a result of this, they have no idea how long something should take. This leads to a surprising amount of time each month being wasted on admin and discussions as opposed to actual work. And because you’re on hourly, you’re paying for every minute of it.

On the other hand, retainers are like having an agency on speed dial. They might not continuously be on the tools and making changes, but the retainer grants you the ability to call them whenever you need something done. And they’ll make time for you.

For this reason, it can be really dangerous to think of a retainer as a collection of hours. It isn’t. The retainer might be based on an estimate of hours, but as mentioned above, you’re really paying for an outcome. If the agency is achieving that outcome for the price they quoted, does it really matter how long they spent achieving it? Not really.

If you agree to pay $5,000 with a KPI of generating $100,000 in revenue that month and the agency hits that target, why does it matter whether they spent 100 hours or 10 hours doing it?

To a degree, you can argue it does. If they had spent more hours working on your campaign, could you have made $150,000? Maybe. Maybe not, but if $150,000 was your KPI, you really should have given them that instead of the $100,000.

As much as hourly retainers are nice from a control point-of-view if you aren’t willing to commit to your agency in the form of a fixed retainer, it’s difficult to expect them to commit to you in terms of priority.

How do I get the most from a fixed retainer?

There are two ways.

• Engage with your campaign and agency

Retainers work on communication. If you:

• Don’t respond to emails,
• Don’t answer your phone,
• Don’t turn up to meetings, or are regularly late,
• Don’t provide input or feedback

Then agencies are going to start losing interest in your campaign. And that’s not unreasonable, because if you’re behaving that way, then you’re probably not that interested in your campaign either.

• Set Expectations In A Service Level Agreement

The best way of keeping your agency true to its retainer is to set out a Service Level Agreement that clearly outlines tangible deliverables you need each month. Do you want them to come and visit you at your office once per month? Put it in the SLA. Do you want a fortnightly WIP? Put it in the SLA. Do you want a firm KPI? Put it in the SLA.

Hold your agency accountable.

Should I Agree To A Fixed Length Retainer?

The practice of agencies locking clients into fixed-length contracts is winding down, thankfully.

It’s understandable why they exist. Generally, the first three months of a campaign require the most activity from the agency, and that activity will generally be worth more in terms of labour hours than the retainer they are being paid.

Because that means the agency technically makes a loss in the first few months, they need the remainder of the contract to recoup those losses. If a client cancels in that period, the agency still gets paid for the extra time they spent in the first few months.

That’s the theory behind minimum-length contracts, anyway. The reality was that quite often the agencies that were offering this sort of arrangement weren’t actually front-loading that much work – they just wanted to know that they had guaranteed income for the next 12 months.

The practice was increasingly criticised as we headed into 2020 and COVID hit all businesses hard and fast. As agency employees left and started their own agencies (such as I did), they vowed to be more flexible with clients, giving them the option to exit with 30 days’ notice.

Now, there are agencies everywhere that don’t use lock-in contracts, so you shouldn’t have to look too hard to find an agency that will give you what you need with the option of exiting easily.

Questions Are Billable Hours…

So is hourly better than retainers? In some ways, yes, in some ways, no. But hourly isn’t scalable. The more you demand from your agency, the more commitment they will expect from you, and eventually, you’re going to end up on a retainer.

And that’s not a bad thing. With new agencies opening up with different approaches, the working relationship is changing from client & agency to a stronger focus on partnerships.

You work together and grow together, supporting each other. Your wins are their wins and vice versa. And if you find an agency like that, you’ll want to be on a fixed retainer.

It took me two hours to write this blog, so just email hello@starkdigital.com.au and let me know to whom I’m invoicing the $500 + GST.

Calum